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– Macroeconomic Equilibrium in the Short Run- Output, Employment and InflationPlease answer clearly step by step extensive answers, so i can see what you have done 🙂
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Chapter 11: Macroeconomic Equilibrium in the Short Run
Question1 In reality, tax revenues are not exogenous, but move positively with income (GDP).
Suppose that T = 𝑇̅ + tY, where t is an exogenous tax rate. Use this tax revenue function to derive
the government spending multiplier in the following simple model: C = c + c1(Y – T) I = 𝐼̅ G = 𝐺̅
NX = NX0 -mY
Question 2 Derive the IS curve for the economy in the above exercise, with I = 𝐼̅– 20i. Plot it in (Y,
i) space.
Chapter 13: Output, Employment and Inflation
Question 3 A Philips curve is represented by the following relationship: π = 𝜋̃ – 10(U – 𝑈̅) + s,
where s is a supply shock term, on average equal to zero. Draw the Phillips curve when 𝑈̅ = 7% and
underlying inflation 𝜋̅ = 3% and 6%. Okun’s Law is U – 𝑈̅ = -0.5 (Y – 𝑌̅)/𝑌̅. Draw the aggregate
supply schedule when 𝑌̅ = 10,000.
Question 4 Using the conditions of the above exercise, show the impact of supply shocks s = 5%,
and s = -2%. Separately show the effect of raising 𝑌̅ to 10,200. Why is it argued that improving the
performance of the supply side of the economy is good for both inflation and employment?

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